DP12806 From Finance to Fascism: The Real Effect of Germany's 1931 Banking Crisis

Author(s): Sebastian Doerr, Stefan Gissler, José Luis Peydró, Hans-Joachim Voth
Publication Date: March 2018
Date Revised: June 2020
Keyword(s): extremism, financial crises, Germany, Great Depression, Nazi Party, Polarisation, Real effects
JEL(s):
Programme Areas: Financial Economics, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12806

Do financial crises radicalize voters? We study Germany's banking crisis of 1931, when two major banks collapsed and voting for radical parties soared. We collect new data on bank branches and firm-bank connections of 5,610 firms. Incomes plummeted in cities affected by the bank failures; connected firms curtailed payrolls. Nazi votes surged in locations exposed to Danatbank, led by a Jewish manager - but not in those suffering from the other bank's failure. Unobservables or pre-trends do not explain the results. Danatbank's collapse boosted Nazi support, especially in cities with deep-seated anti-Semitism, suggesting a synergy between cultural and economic channels.